Silly Sanctions Against Venezuela Boost Hugo Chavez

The U.S. government has finally decided to take on Venezuelan President Hugo Chávez, but probably in the worst possible way: toothless sanctions that barely scathe the caudillo. Instead, these sanctions give him a treasure trove of ammunition to undermine U.S. policies and consolidate his own power.

Secretary of State Hillary Clinton included Petróleos de Venezuela SA (PDVSA), parent company of large American refiner and gasoline retailer CITGO, in a list of seven companies sanctioned last month for supporting Iran’s energy sector.

PDVSA “delivered at least two cargoes of reformate to Iran between December 2010 and March 2011, worth approximately $50 million,” the statement says. Reformate is blended with gasoline to improve its quality.

The sanctions bar PDVSA from access to U.S. government contracts, financing through the U.S. Export-Import Bank and export licenses. But the sanctions don’t apply to PDVSA subsidiaries (e.g. CITGO) and don’t “prohibit the export of crude oil to the United States.”

Chávez could not hide his glee on Twitter on May 24: “Sanctions … imposed by the imperialist gringo government? Welcome Mr. Obama! The real impact of the new gringo aggression is potentiating the patriotic and nationalist morale of Venezuela.”

Chávez is right to thank Obama.

Ahead of Venezuela’s presidential elections next year – perhaps the best chance for a democratic transition of power – the administration has handed its biggest antagonist in the hemisphere an ideological missile to rally support against the U.S.

A case in point: “The revolutionary government calls on all the Venezuelan people, laborers and especially the oil workers, to stay alert and mobilized in defence of our PDVSA and the sacred sovereignty of the homeland,” says a statement from the Venezuelan Foreign Affairs Ministry.

Yet the list of accusations runs deep. For example, the U.S. State Department has repeatedly accused Venezuelan officials of aiding FARC in Colombia; a Spanish court is investigating Venezuelan government support of the Basque terrorist group ETA and U.S. authorities are investigating reports that Chávez’s friendly ties to Iran are translating into support for Hezbollah and Hamas.

Ever since Washington’s pressure on Caracas backfired at the beginning of George W. Bush’s first administration, both the Bush and Obama administrations have stuck to ignoring Latin tongue-lashing. Official reactions to Chávez’s provocations are simply useless and, in fact, to his benefit. Sadly, this is the best strategy the U.S. has come up with thus far.

Also of concern, PDVSA is one of the world’s largest energy companies. It is and will remain an influential player in global energy matters. For instance, the U.S. imports between 9 and 10 percent of its oil from Venezuela.

Full sanctions would require replacing heavy oil supplies, for which much of the U.S. oil refining infrastructure on the Gulf Coast is geared. Additionally, oil prices could rise as a result, an unwelcome scenario in a still wobbly recovery. There would also be geopolitical consequences, as Venezuela hosts numerous influential investors (including many Americans). Considering all of these points, it is all the more baffling that the administration is imposing these sanctions.

A senior administration official quoted in a press briefing that followed the unexpected announcement said, “These sanctions send a strong signal to companies around the world about the risks of dealing with Iran. So it serves as a signal, a deterrent, as much as it does as having a near-term, practical impact.”

Except they don’t. Iran will continue to provision itself with gasoline and additives, Chávez will be emboldened without actually enduring any significant sanctions and both governments will benefit economically when oil prices increase if the standoff escalates.

Now it could be that the decision to include PDVSA on the list is a policy decision for other headaches. There is no doubt that the U.S. wants to target Iran’s lack of refining supply, one of its weaknesses. But $50 million worth of gasoline additive supply is not a game changer for Iran, and Venezuela’s efforts to supply Iran with refined products are inconsequential.

Therefore, President Obama might have fallen into a trap. Or it could be that the administration is trying to quell criticism of its policies toward Venezuela. Whatever the case, these sanctions are unwise. They don’t dent Iran’s refined product supply. They are not “a strong signal” to Venezuela, nor do they weaken Chávez ahead of elections. And they could ultimately result in higher oil prices, threatening U.S. economic recovery.

In sum, this is Washington’s thoughtless foreign and energy policy at its best. So one must ask, why does President Obama have such a cavalier attitude towards America’s oil supply, while strengthening a radical politician who, without such slap-on-the-wrist sanctions, would look ridiculous?

Andrés Cala, South American correspondent of the Energy Tribune, co-authored this piece.